Question:
How should an HOA account for profit in their annual financial statements? Our mgmt company says it should be recorded as a contract liability per ASC 606 but that doesn’t seem right to me. I’m in Oregon.
– Cathy
Answer:
Hi Cathy,
Your management company’s suggestion to account for an HOA’s “profit” as a contract liability under ASC 606 (Revenue from Contracts with Customers) may not align with typical HOA accounting practices. ASC 606 governs revenue recognition for contracts with customers in exchange for goods or services. Member assessments are not typically considered revenue under a contract for goods or services. Instead, they are contributions to the nonprofit entity for maintaining common areas and fulfilling HOA obligations.
Excess revenue over expenses at year-end is usually recorded as a part of the HOA’s equity (fund balance) or transferred to a reserve fund. If the governing documents or budget specify that surpluses are earmarked for reserves, they should be categorized accordingly. Check if your HOA documents specify how surpluses should be handled.
It’s best to verify this information with a CPA.
Disclaimer: We are not lawyers. The information provided on this website does not constitute legal advice.
